Republic Bank vs.

Cuaderno

G.R. No. L-22399, March 30, 1967

FACTS:

Damaso Perez, a stockholder of the Republic Bank, had complained to the Monetary Board of the Central
Bank against certain frauds allegedly committed by defendant Pablo Roman, in that being chairman of the
Board of Directors of the Republic Bank, and of its Executive Loan Committee, in 1957 to 1959, "in grave
abuse of his fiduciary duty and taking advantage of his said positions and in connivance with other officials
of the Republic Bank", Roman had fraudulently granted or caused to be granted loans to fictitious and non-
existing persons and to their close friends, relatives and/or employees, who were in reality their dummies,
on the basis of fictitious and inflated appraised values of real estate properties. Respondent Cuaderno,
governor of the central bank, ordered an investigation, which was carried out of the Bank Examiners. They
reported that the bank has certain mortgage loans which were granted in violations of several provisions of
General Banking Act. The Monetary Board ordered a new Board of Directors of the Republic Bank to be
elected, which was done, and subsequently approved by the Monetary Board. The Monetary Board later
accepted the offer of Pablo Roman to put up adequate security for the questioned loans made by the
Republic Bank, and such security was made a condition for the resumption of the Bank's normal operations.
However, no information was filed up to the time of the retirement of Cuaderno. Subsequently, Pablo
Roman engaged Miguel Cuaderno as technical consultant and selected Bienvenido Dizon as chairman of
the Board of Directors of the Republic Bank. Damaso Perez filed a derivative suit on behalf of the
corporation for a writ of preliminary injunction against the Monetary Board to prevent its confirmation of the
appointments of Dizon and Cuaderno alleging that the Board of Directors composed of individuals
personally selected and chosen by Roman, connived and confederated in approving the appointment and
selection of Cuaderno and Dizon; that such action was motivated by bad faith and without intention to
protect the interest of the Republic Bank but were prompted to protect Pablo Roman from criminal
prosecution. The Monetary Board filed an answer with separate motion to dismiss on the ground of lack of
legal capacity of plaintiff-relator to sue and non-exhaustion of intra-corporate remedies. The court denied
the petition for a writ of preliminary injunction and dismissed the case. Hence, this direct appeal to the
Court.

ISSUE: Whether or not Damaso Perez, a stockholder, has a right to question the appointment and selection
of defendants, which can only be the result of corporate acts?

HELD: Yes.

RATIO: Normally, an individual stockholder is permitted to institute a derivative or representative suit on

behalf of the corporation wherein he holds stock in order to protect or vindicate corporate rights, whenever
the officials of the corporation refuse to sue, or are the ones to be sued or hold the control of the corporation.
In such actions, the suing stockholder is regarded as a nominal party, with the corporation as the real party
in interest. He is neither alleging nor vindicating his own individual interest or prejudice, but the interest of
the Republic Bank and the damage caused to it. The action he has brought is a derivative one, expressly
manifested to be for and in behalf of the Republic Bank, because it was futile to demand action by the
corporation, since its Directors were nominees and creatures of defendant Pablo Roman. The frauds
charged by plaintiff are frauds against the Bank that redounded to its prejudice.

Defendants urge that the action is improper because the plaintiff was not authorized by the corporation to
bring suit in its behalf. Any such authority could not be expected as the suit is aimed to nullify the action
taken by the manager and the board of directors of the Republic Bank; and any demand for intra-corporate
remedy would be futile, as expressly pleaded in the complaint. These circumstances permit a stockholder
to bring a derivative suit. That no other stockholder has chosen to make common cause with plaintiff Perez
is irrelevant, since the smallness of plaintiff's holdings is no ground for denying him relief.